Free Market VS Capitalism: So How Do We Fix It?

[Part 10 of 10, Free Market VS Capitalism essay series.  Part 1 here]

At its root, the solution is a change in mindset.

The whole point of having an economy is to support and improve the lives of the citizens, the people, who make up society.  The economy isn't a goal in itself.  Benefiting "the economy" has no value if it doesn't benefit actual people.  There is no principal involved - any principle which does not actually make life better for real life people is necessarily an invalid principle.

There is a widespread misunderstanding of the Amish approach to technology.  The Amish are not luddites.  They simply question the value of each and every use of technology on an individual case by case.  So while they may not find that the use of tractors in general improves life for their society, if a particular farmer is disabled, he might be granted an exception.
If the entire point of the economy is to benefit society as a whole, it makes sense to question whether or not that end goal is being accomplished.  As the graphs in part 3 show, it is not.  Maximizing growth had value when the nation was young and growing, but today we are grown, and conditions have changed.

Our current system gives the biggest reward to people who do no actual productive work, thereby decreasing the pool of wealth and resources available to everyone else. It keeps employment up only by constantly growing, ensuring rapid environmental destruction and unnecessarily stressful lives for everyone but the upper 0.01%, with some people working 40-50 hours a week and others working none at all.

This would all be easy to fix - and far from socialistic idealism, doing so would require less government intervention, and more free markets.

The trick is to remove all those government creations whose sole purpose is supporting capitalism.



Stop issuing deeds for investment property.  Everyone should be able to have the opportunity to own the land on which they live - having a place to exist is as much a fundamental human need as water and air.  And, like water and air, we can choose to place limits on what an individual can claim ownership over.  No one can buy a river, and no one can claim title to a chunk of atmosphere.  If government refused to issue titles, and refused to enforce claims of ownership of property which the owner was not personally using, there would be no such thing as investment property.  Each individual could own exactly 2 parcels of land - one on which they live, and one for a business.

Stop issuing corporate charters- or at least look at them on an individual case-by-case basis, as the Amish would, and approve them if - and ONLY if - it is determined to be in the best interest of society as a whole.
Instead of issuing a corporate charter of indefinite length to anyone who applied, a charter could be (as they originally were) for a fixed period of time - say 1 year.  After a year, the corporation is dissolved.  For any time longer than that, the applicants would have to demonstrate that its existence would not just profit the shareholders, but would provide some tangible benefit to society that could not be provided any other way, and which more than compensates for it's inherently anti-competitive, anti-free-market nature.

Never allow any corporations to merge, and severely limit the ability of privately held companies to buy each other - this last is a government regulation, but it is one that preserves the integrity of competition, which is a prerequisite for free markets to operate efficiently.

Tie working hours to productivity.  If, for example, the invention of computers increases the overall average productivity per worker by 100%, then overtime law should be adjusted to begin paying time and a half at 20 hours per week.  Again, this preserves an existing regulation, but it is necessary to offset the effect that technology has on income inequality and the labor market (and it isn't a new regulation, but merely an adjustment to an existing one - does anyone really want to go back to before there was such a thing as a "weekend"?)

Instead of copyright lasting for an entire lifetime after the author dies, it could be based on compensation - once the creator has sold enough to make back their investment plus living expenses, maybe a nominal percentage profit on top (10%?  maybe even be generous, and say 25%), once that threshold has been reached, the copyright would automatically expire, and it would enter the public domain.
In the age of the internet, an investment in technology or software or media can become profitable within months, sometimes days, of going public.  There is no reason to leave technology to profit a single individual for 20 years - the moment the investment pays off, there is incentive to have made the investment.

Stop underwriting the finance industry.  Not just the occasional bailout, but ongoing stuff like free insurance and below market rate loans, give banks and investment firms a huge advantage using tax payer dollars.

Tax unearned income at a rate at least as high as earned income - in our current system, money you get just because you already have money - snowball money - is actually taxed  less than money you earn by going to a job, working hard, and producing something of tangible value to society.  Although it is not the biggest reason for income inequality, it is certainly one of the most blatant ways we have set up rules to benefit the already rich at the expense of everyone else.


All these steps would serve to level the playing field, so to speak.  If the playing field is level, then snowballs can't take off under their own weight.  No one would be limited from getting rich - people could make their snowballs as large as they want - but a person would have to roll it themselves.  We would have a true merit based society, where the rich earned not just their seed money, but every penny along the way, by producing value and contributing to society.
Economic growth would slow, but that would be ok, because we have enough already.
With all the excess wealth no longer going to the investment class, there would be plenty left over to raise per hour wages, which would allow everyone to make a decent living with far fewer working hours, which would more than compensate for jobs lost due to less economic growth.  If working hours were reduced proportionately to how much productivity has increased since the 40 hour week was instituted...

  

 ...the standard work week would be 5 hours, increasing job openings by 800% - there would be no unemployment, and the market would naturally drive up wages as employers competed for employees.
Instead of some working overtime (plus long commutes and mandatory lunch breaks), some collecting government checks, and others living on investments, everyone who could work would work, but no one would have to work more than an hour a day.

This vision is so far from today's reality that it seems idealistic, utopian, downright silly.  But the numbers work.  It only seems unrealistic because it is so hard to conceptualize just how enormously much wealth the upper 0.1%  skims off the top of the productivity of everyone else.
Eighty-five people control the same amount of wealth as half the world's population.
That is 85 people compared with 3.5 billion.  That's all snowball money.  All those resources being so concentrated is the reason everyone else has to work 40 hours a week, despite all the gains that technology have brought to production.

(What a funny coincidence, this looks just like those last graphs!)

This didn't "just happen".  It isn't the inevitable consequence of the free market. It began when government started instituting laws and policies which were, in theory, pro "business" and growth, but in reality which much more specifically pro "large corporation", at the expense of small independent business.  The citizenry has gone along with it, seduced by the claim that what is good for giant corporations is good for America as a whole.  Because the effects are gradual, and diffuse in a very complex system, most never noticed the consequences as they happened - and those who did usually jump to a reactionary opposite extreme such as anarchy or communism, and as a result get written off altogether.

If we recognize that the free market and capitalism are not the same thing, that capitalism is better for growth but the free market is better for equality of opportunity, average standard of living, the environment, and the well being of everyone (even those who would only be wealthy instead of rich, since additional money has zero marginal utility to the already wealthy, but they would live in a world with more stability and less crime) - then the solutions to the problems of capitalism are obvious.


The only question left is, how do we go about actually instituting them?


[UPDATE: A friend who read this asked me for any ideas on how, as an individual, we might work towards a free market future.  This is what I came up with: http://biodieselhauling.blogspot.com/2014/06/walk-talk.html ]

Free Market vs Capitalism (Government Intervention)

[Part 9 of 10, Free Market VS Capitalism essay series.  Part 1 here]

There is something that investment property, corporations, and intellectual property all have in common besides for being instruments of wealth inequality.
None of them could exist without state intervention.
Which is a bit ironic, when you think about the stated ideals of many conservatives and libertarians.


Owning the land on which you live is natural.  It is not universal - nomadic humans most likely never had any concept of land ownership - however the concept predates humanity.  Lots of non-human species have land ownership (we just use a different term, "territory", for some reason), especially large predatory mammals.
There will occasionally be border disputes, and if negotiation fails, it may be solved with violence, but once borders are established, other individuals of the same specie will respect them.


But no bear owns two separate non-adjacent plots of land. No cat owns the land that a different cat lives on.
No other specie attempts to force others to pay them tribute for the privilege of living in their designated territory, many miles away from where they actually live.
Ownership of territory is for the purpose of living in it and using it.



Clearly simple ownership of property of land is not dependant on any form of state power, as no other specie has formal large-scale government.  Humans could own as much land as they could personally defend without government.
But it is government that issues deeds.  Government steps in and volunteers to defend property you claim, even if it's in another city, state, or even country from where you actually live.  They will physically remove a squatter or tenant who is behind on rent from your property, at no charge to you, by force if necessary, and you don't even have to be physically present.

Of course, one major advantage of civilization is written laws and monopolized legal violence (police, military) dramatically decreases overall violence.  That is a good thing.  But police intervention in a neighbor conflict could be an extension of protection of life and limb of the citizen, while the citizen is protecting their own property.  Police protection of the home you live in, even while you aren't home, could still be seen as an extension of protection of your person, as protection from the elements is a basic necessity.
But its hard to justify protecting an investment property as protection of life or limb.  That is government intervention used to encourage capitalism.



There is trade without government.  Barter is the purest possible type of free-market exchange.  Currency greatly increases the efficiency of trade by allowing you to trade with someone who doesn't actually have anything you need, reducing a Catch-22 style series of complicated trades to a single transaction.  Currency can exist without a central state government too  - in the past individual states, or even counties and cities produced their own currency. In fact every video arcade and self-car-wash which uses tokens has minted it's own currency. Having a single large scale currency is certainly more efficient and practical, but it isn't a prerequisite for the system to work.
A stock market, however, is far too removed, far too complex, to exist without a large-scale state backing it up.  Without government to back up contracts, there would be nothing stopping a start-up from taking all the cash from their initial public offering, and simply absconding with it.  Given that risk, no one would invest in a company if they weren't personally in contact with the founders and managers.  There could still be investment, even pooled resources in the form of partnerships, but the stock market, as we know it, would collapse without government enforcement.  As we saw recently, even with enforcement of contracts, it would likely collapse without the government occasionally pumping huge amounts of money directly into it!

It is government that grants corporate charters in the first place.  Government grants individuals license to have limited liability.  No matter how many owners a company has, it is still some number of individual people.  A "corporation", no matter how it is legally defined, is obviously not an actual person itself.  It is a collection of people.  People who, as individuals, are held responsible for their actions.  But, by government decree, when they are in a group, they are no longer accountable for their choices.  We, collectively, accept this as just the way it is, but why should we, as a society, tolerate such non-sense?  If an individual driver kills someone through gross negligence, they are charged with a crime, but if an auto manufacturer cuts corners and a dozen people die as a result, no one is held accountable.  At best the "corporation" itself may face fines.  But imagine how much more responsible corporations would act if every single share holder was held legally responsible for its actions!
If the government did not grant corporate charters, there would be no corporations.  Nothing about them arises from natural market forces.  Suggesting that corporations should exist, but be unregulated except by the free market is inherently contradictory - the charter itself is a government intervention.  Without corporations there is no stock market, and it's accompanying unearned income; and the snowball of compound interest melts under the heat of a genuinely free market.



Technology moved like syrup on a winter's morning when the cutting edge was made of stone.  It's hard to imagine by today's standards, but the time frame for innovation was once measured in generations, maybe even entire civilizations, not in months and years as it is today.
Given that, along with how slowly information traveled when it had to be done by foot and speech, how much further back would all of human civilization and technology be set back today if the first person to figure out how to deliberately start a fire was given a 20 year monopoly on the secret.  Then on top of that, each new innovation in the process was given 20 years to benefit one single human.  Imagine if the wheel had been patented, then later the axle.  The road, stone tools, metallurgy, the thousands of individual components to agriculture, moveable type.  Those sets of 20 years would collectively have set back humanity thousands of years, while enriching whichever individual happened to be lucky enough to be the first to stumble on something new.

Throughout history, many great innovators have made a point of not patenting (or releasing the patent immediately), even though they could - because their primary motivation wasn't money.  The polio vaccine, penicilline, the three-point seatbelt, insulin therapy, the touchscreen, hypertext transfer protocol (http), estrogen therapy, hydraulic fracking, vitamin D enhancement in food, the non-surgical pacemaker - the inventors of each chose to give their technology to humanity rather than become rich from them.  They made the world a better place - and they undermine the claim that no one would innovate without profit motive.
Scientists discover because they are fascinated by how the world works.  Inventors invent because an idea gets into their head, and they have to see it come to life.  Artists create paintings and music and books because they are creative people.  There is a word for people who create art just for the money: hacks.
Their work is never as good as that which was created for love of the creation.

It is true that a decent portion of modern creation is driven by profit seeking.  And without the government intervention of intellectual property rights, that would slow down dramatically.
Is that necessarily a bad thing?

Just like with all the other forms of snowball income generation, it can enhance the rate of economic growth. Encouraging investment, innovation, and productivity help an economy grow faster.
But what is our goal?  Is it to become infinitely large?  For one thing, that is impossible.  For another, why would we want to even if we could?

We have far past the point of diminishing marginal returns.  We aren't getting any happier.  Our lives aren't getting any better.  We are far better off than people living in the developing world, but we aren't doing any better than those in the developed world but with smaller and more slowly growing economies than our own. We aren't doing any better than we were a few decades ago.  We have reached the peak of the benefit that growth can bring. The primary reason given to encourage growth is employment, but that's circular - we justify policies that reduce employment (outsourcing, corporate consolidation, the 40 hour work week) on the grounds that it helps corporations be competitive and grows the economy - which is a good thing because it provides jobs!?  It would be much simpler and more effective to create conditions that require more employment in the first place.  Restrict outsourcing, encourage competition and disallow mergers, and adjust the point at which overtime hours begin regularly in proportion to increases in productivity due to technology.  If we did those things, we could keep full employment, raise average wages, and do both without any further growth to the economy.  We could exchange never-ending growth for sustainability.

[Next up: So how do we fix it?]

Free Market VS Capitalism (Market Corrupting Capitalism, Part 3: Intellectual "Property")

[Part 8 of 10, Free Market VS Capitalism essay series.  Part 1 here]

The Colbert Report
Get More: Daily Show Full Episodes,Indecision Political Humor,The Colbert Report on Facebook

I don't know if that video will come through on blogger properly.
Here's a link, in case it doesn't: http://www.colbertnation.com/the-colbert-report-videos/433578/march-06-2014/warner-music-s--happy-birthday--copyright?xrs=share_copy



It seems kind of funny, and fairly trivial, but the implications are really kind of profound.

The tune to the traditional birthday song was created by two school teachers in 1893.

The lyrics were created by their elementary school students (there are only 5 words).

It was published 20 years later in a music book.

Then, in 1935 a company randomly decided to copywrite it - which they could do since no one else had ever tried to.  This company had no connection with the original authors, or even the first people to transcript the notation.  They simply claimed it.  For some bizarre reason, our legal system considers "finders keepers" and "I called it first" as a legitimate grounds for ownership of something which has already been established as being in the public sphere.

Flash forward 50 years (95 years after it's creation, the people who actually created the tune aren't even alive anymore) - and Warner Brother's buys the company that "owns" the song.

Technically speaking, if you sing "Happy Birthday to You" at a birthday party, you own Warner Brothers a royalty.  They don't go to the extent of enforcing that at individual parties, but they really will demand payment if the song is played in any form of media or at any commercial venue.

And the law supports them in this!  Remember, the people who came up with it were not under contract to Warner Brothers.  They were not Warner Brother employees.  Warner did not purchase the song from the people who wrote it.  They purchased it from a company that simply decided to claim it, on the grounds that no one else had.

They took something that was freely available to everyone, and make a profit from it.

The story of Microsoft is not nearly as bad, as Gates and Allen did make significant technical changes to the software they used to monopolize the market - but similar to claiming a freely available song, their first operating system was based on free, open source, existing software (BASIC), adapted to new hardware.  Later DOS was a modification of other existing software (CP/M), which they purchased, they did not create from scratch.

The entire idea of having "intellectual property" is supposed to be to facilitate the compensation of the creative and innovative, to encourage things like art and research which might not be cost effective to invest the time or money into otherwise.

Isn't it?

That would make sense, and its the reasoning most frequently encountered.

The rather bizarre reality is, though, that copyright extends to 70 years AFTER the creator dies!

If its a corporation instead of an individual taking credit, it lasts 120 years after creation (since a corporation may never die).

That kind of undermines the idea that the purpose is to support the creation of creative works and invention.  A dead person can't receive royalties.  This system GUARANTEES that someone is going to get income that they did nothing to earn, whether its the creator's descendants or the corporation that buys the rights to something they didn't create in the first place (because, of course, a corporation isn't actually a person, its just a concept, and it can't create anything).

It's reasonable that a person should be entitled to compensation for the hard work that goes into creating a creative work.  It's less clear how one's heirs are entitled to compensation for their creative work.  Or, to be more direct: they aren't.  Not morally, anyway.

But even aside for the whole "royalties go to some random person for an entire lifetime after death" thing, even extending profits for a single lifetime is a questionable practice.

Labor with tangible products requires just as much effort, and frequently just as much skill and/or creativity.

A fine custom furniture maker, for example, puts in physical labor, needs special skills and tools, and artistic creativity.  When they are done they can sell the product of their labor and creativity.

But they can only sell it once.  They don't get residuals from that one creation for the rest of their life.  Once the piece has been sold, the new owner is free to do what they like with it, including turn around and sell it to someone else.
Intellectual "property" isn't like actual property.  Media industry has popularized the word "piracy" to describe the sharing of media, but in actual piracy or theft the original owner is deprived of something.  At one point they had some physical object in their possession, now they don't have it anymore.  If a person burns a copy of a CD and gives it to a friend, the record company hasn't actually lost anything.

When the concept of government protected intellectual property rights was first developed, your potential consumers consisted of the town you lived in, or however many people you could personally stand in front of and pitch to.  As a writer or composer that was unlikely to be any different.  Without some guarantee of protection, an author would get no compensation at all, as people could copy your work freely.   But even with it, if it was reproduced by someone who brought it to some other country, you would never even know about it. 
Your income from any one creative work was limited by the distribution network - as in, there was no such thing as distribution networks, therefor it was quite limited.

Today distribution networks reach every part of the globe (thanks to mobile computing, one in three people in the developing world has internet access in 2014), and the per unit production cost of (e)"books", video, software, etc is essentially zero. 
Consequently, any of the ways a person can get extremely rich involve creating something which can be infinitely reproduced, and a small to moderate fee charged to each of a virtually unlimited audience.
Examples range from software developers to musicians, movie stars and athletes - any form of media creation; all examples of a zero or negligible additional cost per consumer, and millions of user.

In 1710 it might actually take an entire lifetime to make back the cost of producing a book.  In 2014, with our virtually universal distribution networks, a movie which cost $70 million to produce can make back its entire production budget on opening weekend.  And movies make most of their money not in theaters, but from DVD sales and TV licensing!

Its not that people who produce intangible goods are actually more valuable to society than those who create tangible goods. Its just that the concept of intellectual property was developed before "unlimited consumer audience" was even conceivable, and human (and Americans in particular) have trouble with the concept of "enough".  Especially when the topic is money.

Patents are not nearly as bad as copyright.  Far from lasting an entire lifetime after the creator dies, a patent generally lasts only 20 years.  The rational behind having patents is valid: without them, innovating wouldn't be profitable, and so many innovations, especially those that take significant investment in time or money, are unlikely to be made, and unlikely to result in an actual end product even if they are invented.  Furthermore, without formal protection, even if an invention were made, its creator is likely to keep its function as secret as possible, to prevent copycats.  When applying for a patent all the details must be revealed to the patent office, which means that once the term of patent is up it becomes public knowledge that others can build upon.

Fair enough.

But, like with copyright, times have changed much since the standards were set, and twenty years is a very very long time in the internet age.  Given how soon an invention can break even on production costs, it leaves a lot of time where further innovation building off the first is impossible.

How much further back would human technology be today if the process of deliberately making fire had been patented, and the idea was not allowed to be spread or built upon for an extra 20 years?  What if the wheel had been patented?  How about writing, or the idea of planting certain edible plants? 

When a drug company scientist discovers a cure to a horrible debilitating disease, her employer can charge whatever they want for it for 20 years, even if they already made a profit over and above all of their research and production costs in year 5.  The net result of such a situation is that executives and shareholders of the company can become extremely rich, while humanity as a whole suffers unnecessarily.

How much faster would science, technology, human knowledge grow if patents were only 5 years - or tied to profit, rather than time?  What if, instead of an arbitrary fixed length of time, a patent lasted until the inventor made back no more than 20% above development costs?  There would still be economic incentive to invent and innovate - 20% is a much larger return on investment than you can expect from the stock market or real estate.  Profit just wouldn't be unlimited.



[Next up: Government Intervention]

Free Market VS Capitalism (Market Corrupting Capitalism, Part 2: Corporations)

[Part 7 of 10, Free Market VS Capitalism essay series.  Part 1 here]

This one is pretty easy.

The entire point of a corporation is concentrating capital, in order to gain the benefits that increased capital give a business.  Well, that, and allowing the owners of the company to not be responsible for their own actions ("limited liability"), which has its own set of ethical concerns, but this whole essay series will be long enough without getting too much into that.

It goes back to my first analogy - amid a free market place of individual buyers and sellers, WalMart comes in and buys the entire lot that the market is on, and now consumers no longer have any choice if they don't want to (or can't) travel to the next town over. 

In general the ability to quickly, easily, and cheaply raise large amounts of capital is very good for economic growth.  The small individual entrepreneur would have to work a long time with a small positive net income in order to afford the large factor space, or machinery, or large workforce they may need to expand operations - and ultimately, increase efficiency via economies of scale.

This makes a lot of sense to encourage if you happen to be the government of a developing economy.

We - the United States - doesn't happen to fall into that category.

Economists and politicians almost universally point to continued growth as the solution to all economic problems, but the reality is, we are already grown up.  We don't need to grow anymore.  There is (literally) more than enough to go around. 
US GDP per capita is approximately $50k, while living a comfortable middle class lifestyle for a family living reasonably efficiently only costs half that



(http://www.mrmoneymustache.com/2014/01/12/exposed-the-mmm-familys-2013-spending/)

Regardless of what new technology brings us in terms of cheap energy and environmental impact mitigation,  we live on a finite planet, reaching other planetary systems in a human lifespan would violate the most fundamental aspects of physics, and so infinite growth is simply not an option.

We are at (no - long past) the point where focus needs to shift away from growth and onto sustainability of production and distribution of existing wealth.

As such, the corporation has outlived its usefulness.  It is still doing what it's good at - allowing companies to grow increasingly huge, but there is no longer any particular benefit to society as a whole.

The extent to which economies of scale push down production costs is offset by the forms that typical takes: capital allows corporations to invest in overseas factories and domestic robots, cutting costs by reducing the workforce.  Since labor works in the same supply and demand style as products, any job lost to automation or outsourcing ultimately lowers wages across all jobs.  In addition, corporate consolidation, as it eliminates competition by absorption, creates redundant job positions.  This increases system wide efficiency, but at the cost of labor wages, as well as at the cost of competition, which is to the advantage of the consumer. 

This explains the flat line in real (inflation adjusted) individual wages over the past couple decades, despite massive increases in productivity per worker and its consequent increases in total wealth - literally all the gains of increased technology and other increases in efficiency have gone to the top 0.5% (the upper half of the top 1%)

[

http://www.advisorperspectives.com/dshort/updates/Household-Income-Distribution.php

Note that most of the increase in household income comes not from real increases in average worker wages, but from women entering the workforce, creating 2 earner households, plus an increase in total working hours among all household workers.

http://commons.wikimedia.org/wiki/File:InflationAdjustedMedianIncomeHistory.jpg

http://www.realitybase.org/journal/2009/3/10/the-american-dream-died-in-february-1973.html

As there is less and less competition, there is little motivation for companies to pass along gains in efficiency to the consumer in the form of lower prices.  Instead that profit all goes to the executives and shareholders.

Much of the middle class think this is good for them, because they have investments in the market - a 401K or IRA if nothing else.  However, as concentrated as total wealth is, stock wealth is even more concentrated among the top 0.1% than total wealth.

http://www2.ucsc.edu/whorulesamerica/power/wealth.html

Almost the entirety of the benefit of the stock market goes to a small handful of extremely wealthy individuals.  Their snowballs are already so large, and moving so fast, that they don't have to do any form of productive work to continue getting richer, no matter how fast they spend.

The middle class gets just enough share of the benefits to pacify them, but it makes no sense to be happy with getting a few cents more in dividends every month when the cost is several fewer dollars per hour in wages.

At the same time, many credit whatever companies happen to exist with "creating" jobs.

I have already addressed this thoroughly, so I won't write about it any more here.  If you think corporations or investors or the stock market somehow "create" jobs, please go here for a through debunking:
http://biodieselhauling.blogspot.com/2012/06/poor-person-never-gave-me-job.html

[Next up: Market Corrupting Capitalism, Part 3: Intellectual "Property"]

Free Market VS Capitalism (Market Corrupting Capitalism Part 1: Investment Property)

[Part 6 of 10, Free Market VS Capitalism essay series.  Part 1 here]

One of the most fundamental of the ways state intervention tilts the field to encourage large snowballs to increase in size ever faster has been rather poignant for me here in the real world recently - where I live now there are quite a few homeless people who spend most of their time on my block, one of whom I have found squatting in various places in my building several times in the past few months. He used to live here years ago - as the building manager, its my job to have him leave.  Most recently a family friend of his that was moving out let him stay in her apartment for a night in exchange for helping to pack and move.  A couple days later when I went to get the unit ready for new renters, I discovered he was still there.  What difference does it make if I stay? he asked.  Its not like new renters are going to move in tonight.

Well, actually, we had contractors and cleaners coming in the next morning, but as a more general question, it seems like a pretty valid one.

There are some things that we all agree are common goods.

No one can own the ocean, or even a piece of it.  No private beach extends below the water line.

No one can own a river.  It doesn't matter how rich you are, you can't buy a river.  It belongs to the state as a whole (or, if it crosses state lines, the nation), and every resident can use it.  If you own your own land, you can dig a well, and if you hit water, you can drink it.  No one owns the aquifer. 

Water is a basic necessity of life, and there is a large, though finite, amount of it.

Most of us pay money for water, but that money is for the infrastructure that allows you to turn a tap and have purified water come out of a tap. No one will stop you from going to the nearest body of public water and distilling your own.

No one can buy all the oxygen in the atmosphere.  Not for any price. 

No one can make you pay for the sunlight that lands on you or your plants.

Mr Burns tried.  He was exemplifying cartoonish super-villany (or, extreme capitalism, which often times looks similar - see Who Framed Roger Rabbit).

There are various regulations and restrictions that vary place to place, but in general you can gather food for your own personal consumption on public land, and you can grow your own food on private land.  It is the convenience of having someone else grow food, and then deliver it close to where you live that you pay for at the supermarket.

Food, water, sunlight and air are basic necessities of life.

But there is actually something more basic and fundamental than any of those:

Just by virtue of being made of matter, it is necessary to occupy some physical space in the world.

Even if you aren't alive, you still need a space to exist.

All the other basic necessities of life, air and water and food - either they are free for everyone all the time or there is a way to acquire them, legally, for free.

There is no place where a person can live, indefinitely, without paying some other person.

Pay for the "privilege" of having a space to exist in the world.

We all take this for granted, so nobody notices that this is completely insane!

The single biggest reason Europeans came to the American continent in the first place was to escape feudalism.

And yet, despite the grand ideas of freedom and democracy, of leaving behind the oppressive and exploitative  system of Kings and Nobility, born into power, wealth and privilege - we immediately set about setting up almost the exact same system.

Its right there in the freggin name:  LandLord.

This is not just by coincidence, a funny relic of etymology.

The lords of the middle ages owned the land that other people lived on, and those people were required to give a portion of the product of their own labor to the landlord in exchange for the privilege of living there.  This ownership and payment was enforced by the State, backed by military force if necessary.  Once a particular individual owned a particular tract of land, they could pass it on to their children, who would then become the landlord without having had to ever have done anything to earn it, and could go a lifetime living off of the labor of their tenants.

When we think about the "feudal" system, we universally condemn it as unreasonable, unfair. 

But what part of the above does not apply to us today?

It seems more acceptable not because the actual facts are different, but simply because we all take it for granted.

Of course, land ownership predates feudalism.  It predates civilization.  Some claim (or at least imply) that prior to colonization various "native people" had no concept of land ownership and there were no conflicts over territory, which is of course absolute non-sense.

Physical space is a resource, and a limited one at that.  It's inherently valuable.

The idea that an individual can lay claim to a particular portion of it predates human beings.

For some reason when it's non-humans we give it a different word: "territory" instead of "property", although it is really the exact same thing.

An individual claims a particular tract of land as their own.  No one else (of the same species) gets to be there without permission of the owner, who gets exclusive access to whatever resources it contains (although exceptions are sometimes made for water, if it's scarce, since, as previously noted, it is a basic life necessity).

In fact, it is even true among other species that higher status individuals generally have larger properties than lower status.

But there is one enormously fantastically stupendously big difference between our version and every other creature in the history of life.

No one else claims ownership of land they don't actually live on.

Even if they have an enormous range, perhaps even more than they could transverse in a day, no one else has ownership of non-adjacent tracts of land.  No one owns something they aren't using.

Others will generally respect established property lines, but no one can own more than they could at least hypothetically personally defend.

A cat can't own the land that a different cat lives on.

A bear doesn't charge rent to other bears on its land, nor pay rent to another.

If you are anything other than human, you own the land you live on, no more and no less.

In America only slightly more than 1/2 of adults live on land that they own.

This is substantially less than the official "home ownership rate" (which is about 2/3rds) because of how the Census Bureau calculates the rate: the number of total housing divided by the number of homes occupied by the owner.

That means that if you own a duplex, and live in one unit and rent out the other, your tenant is counted under the "owner occupied" category, since the owner lives in the same building.  If you can't afford rent, and move back in with your parents, you get counted under the home-ownership rate, because you are part of a household where the owner lives.

In Europe the percentage is even worse, closer to 1/3, but 1/2 is already pretty amazingly terrible.

But wait it gets even worse - of the homes lived in by the "owner", almost 3/4 of those are really owned by a bank or other lender.

That means that really only 12%, 1/8th of the American population (25% of 50%) actually owns the land that they live on.

Everyone else has to pay some other person every month for the privilege of having a space on the surface of the Earth on which to exist.

Generally people will point out that - even if the monthly mortgage payment is less than the rent - the landlord is providing a service to the tenant because the landlord put up the down payment, which meant the tenant didn't have to.  It's that down payment that earns the right to charge rent.  Capitalism at it's purest.

Land is the perfect example of how the justification capitalists use is circular in the way I pointed out at the end of my last post: supposedly the landlord is providing the service of providing the large down payment (capital) to buy the land the tenants live on, because the tenants don't have the capital to make the down payment themselves.  But if capitalists weren't there buying up land as investments the exact same land would still be there, and living there wouldn't require any down payment.

In a free market, prices are determined by supply and demand.  When the supply is already inherently finite, and then is artificially reduced - by, say, speculative investing, people with amassed wealth buying more of it than they need solely so that they can rent it out to others at a profit - that will necessarily drive up the price.

Its hard to work backward from the home ownership and headship rates, but the amount of homes owned for the sake of investment (including multi-units in which the owner lives in one) is somewhere between a third and half of all of them.

Obviously that is going to have an enormously profound effect on price.

Imagine if all 43 million rental units were all put on the market at once.  Supply is instantly increased by over a third: the law of supply and demand means that the price of buying a home plummets. 

Between 2007 and 2010 there was a foreclosure rate of around 2% - essentially increasing supply by that amount.  This corresponded to a 34% average drop in home price!
(Granted, this is a gross over-simplification: the supply and demand curves are complicated by the construction of new homes, population increase, interest rates, and the availability of credit - on the other hand, new home construction slowed during this time, and population grew slowly and steadily as always, both these factors should push prices up)

If a 2% increase in supply leads to a 34% drop in price...

But wait... in housing, the very fact that it is so expensive makes it even more expensive - on a typical 30 year mortgage, a home buyer pays anywhere from 50% to 200% of the actual purchase price to the bank in interest payments, on top of the principal. 
Another 3% - $4500 average - goes to realtors and brokers.  There's PMI and inspectors and insurance and taxes to pay, all scaled to the cost of home.

When the purchase price plummets, the interest, as well as all the other fees, drop as well.  Which in turn allows  the possibility of buying in full, in cash, and paying nothing for capital - which means the interests payments are zero, and the buyer doesn't need to be concerned with interest rates at all.

Because of all these extra costs reduce or even disappear, the effect of eliminating speculation and profit on the basic human necessity of having a place in which to exist is even higher than suggested by supply and demand by itself. 

I honestly have no idea how the numbers would work out.  I'm going to go out on a limb and make a wild guess that if all residential homes were owner occupied and all apartments were made into condos, the cost to own the place where one lives would be somewhere between 1/10th and 1/4 what it costs now.  In other words, what it costs now to make a down payment would cover the entire cost. 

The first objection most people will have to this idea is that the "value" of all the millions of currently owner occupied homes would fall just as dramatically as investment properties, and that this would supposedly hurt the middle class as their net worth falls.

But, as I pointed out back in Jan of 2008, a home that you live in is really not an "investment", the way stocks or bonds or a rental property are.  It's not even an "asset", the way cash or gold or art or collectibles are.  All of those other things can be cashed out.  If you sell your home, you need to find a new place to live, and however much your home appreciated, every other comparable home has appreciated by the same amount.  You come out neutral at best (really less, because of transaction costs).  The "value" of a home isn't determined by what the real estate agent says you can sell it for, its value is in providing a warm, dry, legal place to sleep and keep your stuff in.  That value does not vary with the market.  If a person wants to move, this change is to their advantage, as transaction costs are reduced substantially.  You have less capital from the sale of your old home, but your new home is so cheap that it doesn't matter.  On paper you lose out, but in practical reality you come out ahead.

As it stands today, monthly mortgage payments are usually lower than rent on an equivalent home (it has to be, in order for landlordship to provide positive cash flow).  If prices fell enough that down payments and the title transfer process became relatively trivial, there would be no incentive for anyone to pay more to rent than it would cost to just buy the same home.  Landlords are effectively creating the need for themselves by buying land they don't actually need (or even want) to live on, driving up prices high enough that homeownership needs significant capital.

Now, I realize that a lot of regular middle class people own a rental unit or two, and a lot of people are likely to feel defensive about this.

Landlords include my bosses, who I have had only positive experiences with, long time clients, friends, my mother, and possibly someday myself.

What I am writing is theory, about society as a whole and how it works - and how it could possibly work better.

I am not accusing any particular landlord of being deliberately evil or manipulative.  Most actual individual people who own investment property are good people, and - on an individual level - they are providing a form of service by (slightly) risking capital and giving a place to someone to live who doesn't have the capital of their own to buy. 

It is the cumulative effect of a society set up to give advantage to those with existing capital at the expense of everyone else that causes the phenomenon I am describing, not the actions of any one specific individual.

[Next up: Market Corrupting Capitalism Part 2: The Corporation]

How to get to the Top (without actually having to work for it)

[Part 5 of 10, Free Market VS Capitalism essay series.  Part 1 here]

Pro-capitalists generally take it as a given that anything someone has they must have earned, and therefor must deserve.

Of the 20 wealthiest people in the world, 1/2 of them inherited their snowballs.  At best, they get credit for keeping it rolling, for not finding a way to stop it, but they got it already large, already moving.

More to the point, nobody actually creates a truly massive snowball of wealth by their own productivity.

Nobody has ever gotten to the top 0.01% via hourly wages.  One would have to average $25,000 per hour for an entire full-time working lifetime in order to actually earn a billion dollars.

Nobody gets 0.01% rich on salary either - not even CEO or sports legend level salary. 

For the most part CEOs of successful companies are still just in the relatively lowly 1%, maybe the top half a percent.

The most reliable way to get even just to the 0.1% is setting up conditions so that you make money without having to work for it: rent, investment dividends, royalties - or, of course, just having employees.

Acquiring a disproportionate amount of world resources tends to involve one or more of the following - lending out existing capital so that other people give you a percentage of their own labor productivity, or producing something with low marginal cost (something cheap to reproduce) that can be widely distributed - music, movies, sports, software.

I'll come back to the second later.

Pro-capitalists generally justify investment returns on the grounds that the person paying the interest is benefiting from the use of capital that they didn't have to save up on their own.

But that argument is circular.

If some people weren't hoarding all the wealth to begin with, there would be more left over to go around, and people wouldn't need to borrow so much in the first place.

Imagine if a rich man moves into a tiny country and buys the entire nation's mining land. 

His miner's extract ore, it is delivered to his smelters and forges, and he builds all sorts of metal tools.

Then he opens tool rental places.  Anyone who wants to build anything has to rent all their tools from him.

He claims he deserves all the rental fees he gets, because he put down the capital investment in the mines and factories that create the tools.  But before he showed up, the metal ore was still there, the mines were a public good, and competition between lots of little tool makers kept prices competitive.  The fact that he rents the tools instead of selling keeps supply limited and his income high.

In short, if he weren't hoarding resources in the first place, people wouldn't be dependent on his capital.

Perhaps the best example of this is in land, which will be the topic of the next installment.

[Next up: Market Corrupting Capitalism Part 1: Investment Property]

Free Market VS Capitalism (Current State of Affairs; or: Why Should We Care?)

[Part 4 of 10, Free Market VS Capitalism essay series.  Part 1 here]

 A Historically Unprecedented Concentration of Wealth

There are a number of independent ways our system tilts the field and gives an unfair advantage to those who already have capital. This makes things much easier for those who need the least help.  At the same time, by encouraging resources (remember, financial wealth, like paper curranecy, is just a convenient placeholder for actual tangible resources) to be concentrated in a few hands, the system makes it substantially harder for those without capital to make a living. 

Pro-capitalists will often point out that wealth is not finite - value can be created, both by extracting primary resources from the Earth (farming, mining, logging), but notably via technology - an iphone has more value than the plastic glass and metal it is made of. 

However, at any given moment there is a finite amount of wealth currently in existence.   If one person were to have 220 trillion dollars, that is another way of saying that one person controls 98% of all the (currently available) resources on the planet.  This means that the other 7 billion humans would have to divide the remaining 2% among them. 

Gross world product (GDP of all countries combined) grows by approximately 3-5% per year.  But our one insanely rich individual is getting 98% of that 3-5%.  So the growth that goes to everyone else would be .08%  Less than a 1/10th.

This is just a thought experiment - reality is not quite that bad - but it demonstrates why the "wealth can be created" argument is meaningless.  For one, it is impossible to live on hypothetical future growth.  For two, under capitalism, those who already have enough are the ones who get the vast majority of that new growth anyway.

My analogy of one person owning everything is extreme... but it is not as far off as most people would assume.

I think this is one of the primary reasons this issue isn't taken more seriously by more people.  Most people don't realize just how extreme wealth inequality really is.  It's nearly impossible, because the numbers are bigger than the human brain is able to conceptualize.  It's like trying to really understand, on an intuitive level, the size of galaxies, or the distances between them, or the age of the universe, or how everything is made of subatomic particles.  It is humanly impossible to have an idea in our minds of exactly how big the number one googol is (yes, it was a number, before it was a brand name). In reality it is a specific number, but as far as the human mind is concerned, it is interchangeable with infinity.  The number one billion is trillions and trillions of times smaller a number, but it is already inconceivable.  Go ahead, try it: try to picture one billion people.  Or a billion stars.  What does it really mean?  It just gets blurred together as "lots and lots".

We tend to think of emperors, pharaohs , sultans, railroad barons, as having extreme wealth and power compared to the people they lived among. 

In reality there is currently the most extreme wealth inequality there has ever been in human history.

Eighty-five people control the same amount of wealth as half the world's population.

That is 85 people compared with 3.5 billion.

Imagine 85 people.  They could all fit in one large room.  You know more than 85 people by first name.

Now imagine half of all humans in the entire world. 

See, I wasn't exaggerating when I said my analogy wasn't actually that far off from reality.

Those 85 people each have (on average) over 41 million times as much as each of half of the human population has (on average).

Almost half of the world’s wealth is now owned by just one percent of the population - $110 trillion.

Most people know that there is wealth inequality.  But few people realize the extent:

But even this graphic is extremely misleading - the smallest division it shows is 1% of the population.  Within the 1%, if you subdivide it even further to 0.1% or 0.01%, that set of subgroups is just as unequal as the 1% is to everyone else:

See that pink square about 3 or 4 squares down from the top on the right? There is more or less your successful 1%er.
See how much closer it is to the rest of the 99% than it is to the top square? 

The lower 1% is made up of doctors, lawyers, CEOs, frugal computer programers, small business people, and others who actually earn their wealth through direct productivity. 
They actually have a closer amount of wealth to the poorest 50% than they do to the handful of billionaires in the top 0.01%

These graphs are all only showing the distribution in the US.

Granted, the US has some of the most extreme inequality in the developed world, and the country as a whole has disproportionate wealth for its population size compared to most of the world.  But these same graphs would be far more extreme if they included the entire human population.

Now go back to my thought experiment near the beginning of this page.  There is a finite amount of material resources at any one time.  If one person - or 31 thousand (the top 0.01% of America) - holds the majority of everything, then everyone else has to divide up whatever is left.  This means that the the concentration of wealth directly impacts poverty.  You can not ever eliminate poverty while leaving such massive wealth concentration in tact.

Go back to my analogy from a previous page - some people's snowballs have gotten so large that they pick up ALL of the snow as they pass, so that there is basically nothing left for anyone else.

[Next up: How to get to the Top (without actually having to work for it)]

Free Market VS Capitalism (What is Capitalism?)

[Part 3 of 10, Free Market VS Capitalism essay series.  Part 1 here]

When people point out the extreme income inequality, the corruption of politics, the dissolution of labor protections, environmental degradation, and all the other similar and related injustices we see occurring, they are not referring to free market economics.  These things are almost all due directly to capitalism.

The best analogy for capitalism I've come up with was during a spirited debate about the ethics of capitalism on the Mr Money Mustache forums:

A person makes a snowball.  In order to make a snowball, you have to physically go outside, scoop up some snow, and mush it together.  You produce it by your own physical labor.  Once you have it, you can put it down in the fresh snow and start rolling it around, and more snow will stick to it.  That makes it a lot easier to get more snow on your ball more quickly.  And the bigger it gets, the more it collects with each revolution.

The assumption I always made - the one that most make - is that capitalism arises naturally from the free market.  One person produces more income than they spend, they save the difference, they invest it, it earns them more income, which they reinvest. 

This really does happen, and could happen in even the most primitive and simple society.

So the extremes we see today must be the natural extension of that process... right?



But that is equivalent to saying "When I work out, I get stronger and more muscular - therefor body builders and power lifers must have gotten to where they are just by working out even harder, for more years" - neglecting that all of the top athletes have some degree of genetic gifts, professional coaches, extremely strict diet plans, and most use some form of biochemical assistance that would get them banned from most professional televised sports.

Its the same with capitalism - the extremes we see today are not just from some people working harder and investing more wisely.  There is another element being introduced.  That element is the state.
The State is the coach, diet plan, and performance enhancing drug of capitalism.

In my analogy the person making the massive snowball is still out there in the field, pushing the ball around the field with their own arms and legs.  The increases come faster, but they are still contributing to the process.

But what happens if they find themselves at the top of a hill?  Push it to the edge, and it takes off on its own.  At that point they have stopped contributing any labor.  They have stopped contributing anything at all.  If the hill is big enough, it may get enormous, gobbling up any snow in its path (and perhaps crushing anything that gets in its way - but lets not take this analogy too far just yet...) much faster than any person could possibly collect it by actual productive labor.

What the state does, in this analogy, is control the angle of the hill.

By default, the part of capitalism that is built into the market - if you earn more than you spend, you will have excess, and that excess can be invested - can tilt the field inherently. 
But what we see today is a massively tilted field, and that is due to specific policies and laws and rules that - although we take many of them for granted - are choices we, as a society, have made. Choices which we could change any time we, collectively, decide to.


[Next up: The Current State of Affairs; or: Why Should We Care?]

Free Market VS Capitalism (What is a Free Market?)

[part 2 of 10, Free Market VS Capitalism essay series.  Part 1 here]

So, what do I mean by the assertion that capitalism and the free market are different things?

The key feature of a free market is that all individuals are free to participate and make their own decisions.

We treat the term "capitalism" as if it's key feature were the same, but the real key feature of capitalism is that some people accumulate wealth - capital - and use that wealth in ways that allow them to leverage additional wealth out of existing wealth, without having to personally contribute any additional productivity. 

The easiest way to think of a free market is imagining a literal market: a flea market or farmer's market.

You have a big empty lot partitioned into more or less equally sized parcels.  A bunch of different independent vendors rent one, and sell whatever they want, for whatever price they want.  Customers wander around and buy whatever they want.  Seller and buyer can negotiate prices, and sellers with better product will sell more and/or can raise prices, but as long as each seller does better than break even, they will likely show up again next week, keeping competitive pressure on every one else and keeping variety available for the consumer.

Under capitalism any one vendor which has any form of advantage - maybe they have a better product or a more efficient process that allows them to lower prices (or maybe they just have an advertising guy with a degree in psychology, or they are friends with the market manager, or they inherited a million dollars from Great Uncle Giles, or they use slave labor; the point is it really doesn't matter what the advantage is, and there is no reason to assume it is always a better product) - can use that initial advantage to first buy 5 or 6 different stalls in the same market (but as likely as not, give them all different brand names so that customers don't know), and then 1/2 of all the stalls, and eventually all of them, so that its really just one single vendor (pretending to be many small vendors, for marketing purposes).  At that point they can set prices and lower quality, because there is no competition, and consumers no longer have any choices.

Really, in the real world that process would be simpler and more straight forward - the big empty lot that once housed the market would become the parking lot to the new WalMart, done and done.

When Adam Smith talked about the invisible hand of the free market, he was explicitly talking about the former scenario, and not the latter.  When people point out the efficiency of markets, how many people acting independently can produce complex things more efficiently than central planning can, whether they realize it or not, its the free market they are talking about.

Remember this the next time you hear anyone use the "invisible hand" analogy, or support the notion of the efficiency of individual self-interest in the context of capitalism - these concepts were never meant to apply to capitalism.  They are referring specifically to a free market.

There are a bunch of individual factors that are necessary for the "invisible hand" of individual self-interest to actually maximize efficiency and utility for a society:

-Virtually unlimited buyers and sellers - any industry which has seen significant corporate consolidation is out

-No barriers to new sellers opening up shop - anything which requires major investment in infrastructure or equipment doesn't count

-Complete transparency of information - the internet has gone a long way to providing this one - in the past this one made the entire idea purely hypothetical. 
So, score one for Free Markets.

-Zero transaction costs - any purchase made by credit card isn't a free market transaction.  Also all financial industry transactions, stocks purchases, loans, by definition, don't operate in a free market

-Non-increasing returns to scale - as soon as you outsource manufacturing because you can't keep up with demand, you have left the free market, and transitioned into capitalism.

-Rational buyers - the entire $44 billion advertising industry is devoted almost entirely to preventing rational buyers. Pre-Edward Bernays advertising was generally of the format: "This product exists.  These are its features.  This is what it costs."  Post-Bernays marketing is about using psychology to manipulate individual behavior; getting people to buy something which they wouldn't without the ad, even if they knew about it.

-No externalities - anything that produces pollution or draws on common goods can not be claimed to operate in the free market.

Obviously that doesn't leave much left. 

Even in the best of circumstances, its very unlikely that all of those conditions would apply.  The entire thing was a theoretical framework to begin with. But it is certainly possible for an economy to lean more in one direction than the other.  The more we set things up to encourage capitalism, the further we get from a free market.

There are a few other factors in addition to the ones above, but if you don't want to enroll in an economics class before finishing this blog post, there is one very easy and quick way to tell whether a particular industry or company is actually operating in a free market, in the original Smith use of the term:

In a free market, sellers make zero profit.

Read that last sentence again a couple times.

Think about all it implies.

Understand - this is not my own personal opinion or interpretation.  This is what Adam Smith, father of economics, wrote in his famous, oft quoted, book, The Wealth of Nations.

Perfect competition dictates that sellers will sell at the lowest possible price that allows them to break even.

This does not make being in business pointless.

Profit is what is left over after paying not just costs for materials and rent and advertising and loan payments, but also paying the employees, including management.

People are still making money.  If the manager is the owner, the money they make is not profit, it is salary.

That is the point in running the business.  There is even still a point in investing, as the company could still pay interest on their loans.  Profit is what is left over after all costs.

Any industry or company that has more than zero profit is not operating in the free market.

[Next up: What is Capitalism?]

Free Market VS Capitalism

7 years ago I wrote about how, contrary to almost universal belief, democracy and the free market not only don't necessarily go hand-in-hand, but they are actively opposed to each other.

That they are two parts of a single whole comes from a extremely successful deliberate public relations campaign by US government and corporations, going all the way back to inventor of manipulative public relations and advertising, Edward Bernays.

The next year I pointed out parallels between capitalism and anarchy - but I got it wrong.  I should have compared the free market to anarchy.

I was making a similar mistake myself.  American propaganda has basically everyone assuming that the terms "free market" and "capitalism" are interchangeable.  I realized quite some time ago, in arguing with anarchists, libertarians, conservatives, and capitalists that the two meant distinct things.

But what I've realized only recently is that, just like democracy and capitalism, the two are actively opposed to each other.

You can not have a free market under capitalism.  And you can not have our current degree of capitalism without a significant amount of State power actively manipulating the market, which inherently means it is no longer "free".

Of course, even though modern America treats them as interchangeable, this idea is not new.

The person who basically invented the entire discipline of economics, the person who's words capitalists use more often than any other, Adam Smith, recognized that the two were actively opposed, and even that it was the role of the State to intervene to prevent capitalism from corrupting a truly free market.  Unfortunately, few of the people who claim to follow his model actually read his book...

In my next couple posts I'll get into explanations, examples, problems and (hypothetical) solutions.

For now let me just point out that realizing this distinction reconciles a lot of the apparent conflict between the arguments of people with various political/economic outlooks.  One side points out the (legitimate) benefits of the free market, while the other is focused on the (legitimate) problems of capitalism.  Its only because both sides assume (incorrectly) that the two are the same that they are stuck at an impasse.  I propose there is no valid reason we could not set up society in such a way to continue to receive (the majority) of the benefit of a free market economy, while avoiding (the majority) of the problems of capitalism.

[Next up: What is a Free Market?]

You trust yourself WAY too much

Think about all the stuff you know, on all the millions of topics there are to know stuff about - numbers, names, relationships, science, history, skills, where you left your keys...
Now think about how many times in your life you have been mistaken about something you had been pretty sure of.

Of all the stuff you "know" right now, a fair percentage of it is wrong.

For some strange reason, nobody seems to notice this, and everyone goes on being sure about all manner of things - frequently including things that there is no possible way they could know for sure.

We (humans) have figured out a fair bit about our own minds.
Our awareness, perception, and recall are all very, very bad; yet we almost all almost always remain confident that our own perception accurately portrays the world outside our heads, that our memories accurately reflect what actually happened.

But you don't have to take my word for it.


The following 3 documentaries are really fun. They are interactive - if you have any doubt about your own limitations, if you don't doubt your self as much as you should - these videos should cure you of that, and grant you some humility.
And they do it in a totally entertaining way.

Watch 'em!!!

(Embedding isn't working, blogger won't upload, and Nat Geo won't allow it on youtube, so you will have to click on the links to watch)

  National Geographic: Test Your Brain Episode 1 - Pay Attention

  National Geographic: Test Your Brain Episode 2 - Perception

  National Geographic: Test Your Brain Episode 3 - Memory



No, I'm serious, click, watch.



Its free!
They are each 45 minutes long, but what you learn from it will make your life better forever.
They will help you make smarter decisions.

And aside from all that, it's filled with tricky games and puzzles, magic tricks (which they then explain) and tests, and if you don't enjoy it, I offer you a rock solid no-questions-asked, double-your-money-back-guarantee.

If you make it to the 5 minute mark without getting sucked in, well... I just don't know what's wrong with you.

 You may not have an entire 2 and a half hours right now, but do come back and watch the other two as soon as you have a chance to give it your undivided attention.

 And when you finish, take some time to reflect on what it all implies.



Its fun and interesting, but it is really one of the most profound realizations a human can have, to fully internalize this information, to accept how this affects us literally every day, to acknowledge what it implies about everything we think we know.

 As all the games and puzzles in the 3 videos showed you - you, reading these words right now - are not an exception.

 It isn't just some interesting psychological study, weird guys in labs coats doing stuff to dogs and rats which is ethically questionable, or surveys with tricky worded questions taken by college kids.

 This stuff affects you every second of every day, every piece of information you take in is processed by the same brain that failed all the tests in these documentaries.
 Which means you should always be aware that what you remember is not necessarily what actually happened, you should know there was always something going on that you missed, know that every single experience is subject to misperception, and you should question the stuff you are confident about just as much as you question those who disagree with you.

 This is not to say you can never know anything with confidence. It just means that personal experience should not outweigh better evidence. Maybe you saw something that looked like a ghost once, but given how imperfect our awareness, perception, and memory is, the more objective evidence against it should outweigh your personal experience.

Get over your ego.

You aren't always right.

 Even things you are 100% certain about, sometimes turn out to be wrong.

 Maybe you should be 100% certain less often.

This isn't an insult to you personally, it is just the nature of the human brain. We weren't optimized for our modern world, nor, for that matter, for understanding the world and getting to underlying truth's. We were optimized for survival on the savanna, and sometimes superstition leads to better chances at survival than careful objective analysis. Our world today is a million times more complex than eat or be eaten though, so it is in our own best interests to learn what our brain's limitations are, so that we can learn to compensate for them.

So, who do we trust, if we can't even trust our own senses? Not somebody else, that's for sure. Somebody else makes all the exact same mistakes as we make, but with the added disadvantage that they haven't seen those videos, they haven't been to the You Are Not So Smart blog or heard the podcast

   

and so their misinformed opinions don't even have the chance to compensate for the human mind's natural errors, because they aren't aware of them.

Enter Science!

Science is not guys in lab coats with fancy degrees and expensive equipment.
Science is just a method for checking if a particular idea is right or not, as objectively as possible.
Its a way to compensate for all the limitations of the brain that those documentaries I linked to just taught us about.
No one person can make a scientific proclamation and have it actually be science - it is crowd sourced, anyone can check, even up to and including you, whether the things it suggests actually pan out under testing and double testing. That's what makes it more reliable than personal experience, or even the collected opinions of thousands of people.

But I won't go into that in too much detail, because I already have, quite extensively, here:

  Science!


  http://biodieselhauling.blogspot.com/2013/05/science.html